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June 15, 2011

Northeast Ohio Market Snap Shot | Summer 2011

What a difference a year makes. Total U.S. investment transaction volume was up by 120% in 2010, compared to the same period in 2009, and overall cap rates were down 30 basis points (bps) to 7.4% according to Real Capital Analytics (RCA). This trend not only continued in 2011, but also sped up. Commercial property sales reached $44.2 billion through April, a 75% increase over the same period in 2010, at an average cap rate of 7.35%.

Continued investor demand for core assets in primary markets has been a significant factor to increased sales, but activity is increasing in secondary markets such as Northeast Ohio as well. We have seen a large uptick in activity over the last two quarters in properties offered for sale. Consequently, the trend in the secondary markets appears to be the reverse of the primary markets – new offerings are preceding sales. Since secondary markets generally present more risk and less growth, this trend makes sense as investors ease away from the primary markets as supply tightens.

Investors interested in Northeast Ohio are seeking safety or stability, or both. As a result, properties which attract the most interest include single-tenant, net-lease with long-term credit; grocery anchored shopping centers; medical office buildings near or on hospital campuses; senior housing; and sale-leasebacks. The amount of capital chasing these assets continues to increase, and the lack of supply in certain markets has created a “scarcity premium,” driving pricing to levels we have not seen since 2007, even here in Cleveland. This is combined with historically low interest rates and a return to more reasonable credit underwriting to drive the pace of property dispositions.

Owners of these properties should evaluate whether a possible sale now makes sense to take advantage of the scarcity premium. Low interest rates are also helping to stabilize cap rates for properties that may not necessarily fit into one of the “hot” property buckets. Either way, as we look out on the horizon, we see continued loosening of the capital markets and good opportunities for investors and owners alike.

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This makes me remind that The total investment transaction volume on the Hungarian real estate market is estimated to have been around €283 Mln in the first half of 2011, which includes only transparent investment transactions. "This is generally in line with our expectations at the end of 2010. Of this total, however, a significant portion was from regional and international deals" – said István LeRiche, Associate Director at Colliers International Hungary, concerning the latest investment market report.The focus of investor interest remains high-class trophy assets in good locations or with long-term lease agreements, such as A-class modern offices, prime retail centres and industrial properties. Sustainability and green certifications are also becoming increasingly important to attract buyer interest. Check our more on investment here at commercial property.

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Scott Pollock & Steve Latkovic

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Scott Pollock & Steve Latkovic are Directors of Candlewood Partners Real Estate Group based in Cleveland Ohio. Candlewood’s Real Estate group provides capital solutions and investment advisory services for the commercial real estate industry. Scott & Steve are pleased to offer this Blog as a forum to update their clients on industry news and market trends that impact their real estate decisions and portfolios.
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